The live music business has a reluctant anthem in 2020: “The waiting is the hardest part,” from Tom Petty’s 1981 hit “The Waiting.” With tours on hold since March 12, artists, venues and concert promoters are biding time by livestreaming concerts and holding drive-in concerts until a COVID-19 vaccine allows touring again.
Live Nation, stuck at a near-standstill since March, has the benefit of deep pockets and access to capital markets. Its current monthly cash burn is $110 million, more if one-time severance costs are included. A slimmer Live Nation can easily get to next summer without concerts at 100% capacity. But the high cost of waiting has taken a toll on the concert business. In the U.S., independent venues, having laid off most or all staff members, created a lobbying group, the National Independent Venue Association, to seek Congressional help. Some venues, such as Spaceland in Los Angeles and U Street Music Hall in Washington, D.C., have already closed (see an updated list of closed venues here). And agencies such as WMA, CAA and Paradigm have laid off hundreds of full-time staff.
But the game of attrition could end next summer. Live Nation’s earnings call Thursday became outdated after news of a successful COVID-19 vaccine trial was released on Monday (Nov. 9). Its share price jumped as much as 38.7% Monday morning after drug companies Pfizer and BioNTech announced their vaccine was 90% effective in a large-scale trial. The vaccine could be available late this year and widely distributed before the lucrative summer touring season.
Keeping in mind the recent news, here are five questions that were answered with Live Nation’s third-quarter earnings.
Where does Live Nation’s liquidity stand?
Live Nation has enough capital to last through 2021. On Sept. 30, Live Nation had $2.6 billion of total cash and cash equivalents (vs. $3.3 billion in the second quarter), including $951 million of free cash (vs. $966 million in Q2), and $962.6 million of available debt capacity (unchanged since Q2). Its monthly cash burn from operations dropped to $110 million from $125 million last quarter. Also, it lowered its discretionary spending by another $100 million beyond previous reductions. In all, Live Nation lowered 2020 costs by over $900 million and dropped its cash usage by about $1.5 billion.
Does Live Nation have plans for virtual concerts post-pandemic?
A qualified yes. Virtual concerts are a “great complement to the core business,” Rapino said, but he expects costs to outstrip demand for most artists. Instead, virtual concerts are good for “a few incremental dollars per show” from fans that can’t attend concerts or for in-venue streaming for fans that want to stream video of backstage feeds or different camera angles, for example. Live Nation appears to face an innovator’s dilemma: some startups will build businesses on virtual concerts but on a level that doesn’t interest a larger company. The startups’ core businesses of hosting live concerts will give them a high degree of specialization and expertise. Over time, a few of these startups will survive, others will die off and some will be acquired.
How can Live Nation make permanent cost cuts?
Like many companies, Live Nation will exit the pandemic slimmer than before. “The work from home, decentralized service model like ours has been an incredible new gift to figure out how can we restructure and still deliver the same volume without some of the costs,” said Rapino. More at-home workers will require less office space and less expensive leases. Rapino added the goal is a $200-million annual reduction in fixed cost.
If fewer fans attend shows, will artists be paid less?
Yes, artists “will adjust their expectations to the reality of the venue and local situation,” said Rapino. Live Nation has said it aims to return to scale by the summer of 2021 — contingent on factors ranging from a working vaccine to local restrictions. Before reaching full strength, audience size will increase in steps as governments ease restrictions. The large tours suspended because of the pandemic will aim for a summer return. New tours should look at fall 2021 or 2022, Rapino said.
Does Live Nation expect to acquire distressed music venues?
No, Live Nation does not expect to purchase small music venues that risk closing if not for a buyer. Rapino dismissed the idea when asked about a plan by Marc Geiger, the former head of music at William Morris, to bail out small venues in exchange for a controlling interest. Financially, small clubs don’t provide enough U.S. or global synergies to be economically feasible, he said. Instead, Live Nation likes clubs as a part of its large venue ecosystem. Besides, Rapino doesn’t believe small venue owners are going to sell at fire-sale prices. Instead, he expects them to use access to capital — although small venues don’t have the same access to the capital markets as large venue conglomerates — and loans through the U.S. government’s CARES Act.